Investors Await Inflation Data As Stocks Advance In The U.S.

Whether and how quickly inflation is easing will be determined by Tuesday's consumer price index.

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As investors awaited the release of inflation data due later this week, they expected that the results would assist in shaping their assessment of how the Federal Reserve will proceed in monetary policy decisions.

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During the day, the Dow Jones Industrial Average gained 288 points, or 0.9%, and the S&P 500 gained 0.8%. Nasdaq's Composite Index gained 1.3%, while the Nasdaq 100 gained 1.1%.

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There is going to be a release of the Consumer Price Index (CPI) for January by the Labor Department on Tuesday. This is a measure with which consumers keep track of what they are willing to pay for goods and services. Despite the slowdown in inflation and the threat of a surge in inflation, investors are broadly expecting inflation will continue to moderate this year with the S&P 500 up 6.5% as of Friday, but some are cautious that inflation might rise above the Federal Reserve's target. 

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In the eyes of Peter Garnry, head of equity strategy at Saxo Bank, the issue here is at what point the inflation will begin to stabilize. Inflation can begin to stabilize at a certain point. The Fed will be forced to do more or maintain rates higher than market expectations if the inflationary factors persist, at which point the central bank will have to be impatient or do more than the market is pricing in." 

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In general, higher interest rates reflect less of a negative impact on stocks since investors can buy safer assets, such as Treasury bonds, for better returns. As a result, a greater portion of the wave of future profits will appear to be less valuable in today's money when interest rates rise, and this will be felt particularly by technology stocks whose value is strongly dependent on expected growth.

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There are a few big companies due to report their fourth-quarter earnings later this week, including AIG, Airbnb, Applied Materials, Cisco Systems, Coca-Cola and Kraft Heinz, even though the most active phase of the fourth-quarter earnings season has finished.

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It has been reported that the NASD FactSet has found that a higher than usual percentage of companies have failed to meet their consensus sales and profit estimates so far this year. In the long run, profits are expected to decline by 4.9% for the first time in over a decade, marking the first time such a decrease has been encountered since 2020, according to its analysis.

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All sectors of the S&P 500 Index, except for energy, posted positive returns on Monday, with every sector showing gains. The S&P 500 is poised to rebound from its 1.1% decline last week, its first weekly decline of the year, with this week's trading marking a rebound.

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It's evident that investors are still jittery despite the rally this year. Refinitiv Lipper data through Wednesday show that they have pulled $31 billion out of U.S. equity mutual funds and exchange-traded funds since the beginning of the year. For the first time since 2016, we've seen the most money pulled from domestic equity funds to start a year.

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A note Monday by Jean Boivin, head of the BlackRock Investment Institute, noted that the market would pay close attention to core services inflation when the CPI report is released on Tuesday.

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As well as retail sales and industrial production in the U.S., Mr. Boivin wrote, "we're keeping an eye out for signs of ongoing economic harm."

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After Fidelity National Information Services announced it will spin off its merchant division in a $43 billion acquisition a year ago, the payments giant was the worst performing stock in the S&P 500 Monday, plunging 15%. Broad-based index performance was topped by biotechnology company Illumina.

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Markets in bonds saw the 10-year. From Friday, the 10-year treasury note was priced at 3.743%, down from 3.730%.

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Energy markets declined 0.4% to $86.05 a barrel as Brent crude, the international benchmark, fell 0.4%.

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A pan-European index, Stoxx Europe 600, rose 0.9% overseas. A mixed performance was seen in major Asian indexes. South Korea's Kospi Composite fell 0.7% while Japan's Nikkei 225 lost 0.9%, while China's Shanghai Composite gained 0.7%.